Hospital Pass

Whilst a common phrase in rugby, it sums up nicely the habit of ‘smart money’ passing the financial ball to the hapless private investor before ‘that’ crashing tackle, with crash being the operative word in this financial metaphor.

We’ve written previously of Bank of America Merrill Lynch reporting the trend of institutional investors exiting the sharemarket at a great rate and also senior execs (in the know), particularly in the financial sector, offloading shares in their own companies at alarming rates.  Even the rampant share buybacks by US corporations seems to have abated (as we’ve reported the sudden reduction in corporate credit growth last week).  So who is buying these shares?

Charles Schwab Corp is one of the US’s largest brokerage firms.  Last week they reported that new accounts surged by 44% in the first quarter of this year.  Individual private investors opened accounts at the fasted pace in 17 years.  You might recall one of the biggest bubbles in history occurred 17 years ago… the dot.com bubble.  That crash saw shares lose 78% of their value after reaching ridiculously high valuations.  We saw exactly this same behaviour in the lead up to it.  “It’s different this time” reared its head yet again.

In classic bubble market behaviour the little guy who feels like he’s missing out on all these amazing gains comes in at, or nearly at, the end as the smart money is getting out of the way… passing the proverbial ball into their eager open arms.

Speaking of smart money it doesn’t get any bigger than Blackrock.  Last week their CEO, Larry Fink, echoed those concerns saying “the warning signs are getting darker".  He put the current hiccups in the market down to people waiting to see what corporate earnings would look like this quarter.  To date this hasn’t concerned punters as it was all hope based with expectations of health care reform, infrastructure spending and tax cuts… none of which have eventuated.  Trump threw out another bone to the hope crowd on Friday night saying we’ll hear all about the “massive” tax cuts this Wednesday.  No mention of specifics or getting it through Congress.  The smart money aint buying it, the little guy is lapping it up.  The graph below is a salient reminder of reality…